Post a new topic
    7 Replies Latest reply on Dec 6, 2008 10:05 PM by loan guy

    How does investors work

    Gene2010 Newbie

      I am starting or trying to start a new venture and looking at the possibility of asking for a investor(s). I am not savvy in this area and would like to know from someone (SCORE member if possible) how this works. If an investor says i'll fund the asking dollars for 10% of your business . . . . does this mean I give him 10% interest on the money he is loaning or he is a 10% owner of my business and I give him 10% of the monthly profits from now on.

       

      Thanks for any insight you can provide.
        • Re: How does investors work
          NoBullFunding Scout
          It's the latter. An investor takes equity in your company, meaning they participate on a pro rata basis in your profits and loss. If they were just charging you a %, they would be debt holders, with the most common example being a bank.

          Just as an FYI, finding an investor is difficult. 99% of businesses are not businesses that investors would want to invest in. Unless you have an innovative product/service, or have started to develop a strong brand and franchise concept, an investor won't be interested. For example, I've seen members of this forum seek investors for clothing stores. Most retail stores concepts have low barriers to entry, so if an investor really wanted to be in the retail clothing business, they'd just go ahead and open one and find a manager. In other words most entreprenuers don' bring enough to the table to make an investor want to invest with them.

          So in other words, you'd be better off spending your time trying to find a lender than an investor.
            • Re: How does investors work
              intechspecial Ranger
              I have found what NoBullFunding says is true. You would be better off to develop a business plan and hit the pavement to find a bank that will loan you rather then to find an investor. I have had no luck on that side of things, but I might not have something that is of interest to investors as well. I have found no success locating government funding of any sort.

               

              I do not know the ins and outs as far as how an investor will decide on who to work with, but NoBull's response makes sense.

              Well, good luck in your endeavor, and be sure to keep us updated as to how your business is doing.

              Mike
            • Re: How does investors work
              LUCKIEST Guide
              How does investors work

              Back in July you wrote "I am trying to start a new business - Childcare Service or Daycare"

              Is that what you are talking about. NOW. You can go to SCORE online (FREE) and find a SCORE Counselor who might be an investor or who has a legal background that can help you.

              You should also talk to YOUR lawyer.

              Good luck, LUCKIEST
                • Re: How does investors work
                  Gene2010 Newbie

                  This is for the daycare and another venture I'm looking at. The daycare requires a lot more than anticipated, especially with the price of commercial real estate and the requirements to operate the daycare. To maximize the potential of having a daycare requires a facility at least 8,000 square feet and I have found in my area to get a property that will need minimum modifications start around $500,000 which is a bit out of my range right now.

                   

                  I am putting together a business plan for another venture I'm looking at. It still will require commercial property but I think I can manage with a 3,000 - 5,000 sq ft facility. So far with preliminary figures operating the business at 70% capacity will net me about $200,000 profit over the first 12 months. But, again, I need to complete the plan and analysis and have them reviewed for accuracy.

                   

                  Thanks again for your input and I will contact the SCORE group.
                • Re: How does investors work
                  Gene2010 Newbie

                  Thanks for the information. I kind of figured the investment would be for the duration of the business, but since I don't have that insight wanted to be sure. Thanks again.

                   

                  I do have another question. I was led to believe that banks will not loan money based on a business plan, regardless of how sound and lucrative the proposed product/service is. Has anyone gotten any type of loans based this way?

                   


                    • Re: How does investors work
                      NoBullFunding Scout
                      Your are 100% correct that a bank will not lend solely based on a business plan. There need to be real dollars (yours dollars going in, and real dollars already generated by the business on a historical basis) and you need to demonstrate real experience in running that type of business.
                    • Re: How does investors work
                      loan guy Wayfarer
                      Gene2010,

                       

                      The investors I work with all struture fees on a per deal basis. Every deal is different. Do you have a business plan or executive summary I can review?

                       

                      loanguy@walkerlender.com